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Saudi Arabia, Asia set to dominate sukuk market in 2012  Join our daily free Newsletter

MENAFN - Arab News - 02/01/2012

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(MENAFN - Arab News) Asia and Saudi Arabia are inevitably set to dominate the sukuk market in 2012 with high quality quasi-sovereign issuers taking the lead, especially to fund infrastructure and projects in the oil, gas, petrochemicals and transport sectors.

"The outlook for 2012 appears bright," explained an experienced Islamic banker to Arab News on the condition that he remains anonymous. "The ringgit-denominated sukuk market will continue to dominate with several mega issuances to fund infrastructure development activities and programs. The total sukuk issuance for 2012 is expected to hover between RM50 billion to RM60 billion, which would account for 70 percent of global sukuk issuances for 2012. Wakala and Ijara sukuk structures will dominate. I am expecting new entrants from Asia Pacific, Kazakhstan and possibly a couple of African countries to enter the sukuk market," he added.

The major move by far will come over the next two weeks in Malaysia when Projek Lebuhraya Utara-Selatan Berhad (PLUS), a wholly-owned subsidiary of PLUS Expressways Berhad, the major provider of expressway operation services in Malaysia, is expected to launch a mega RM34.35 billion sukuk program.

PLUS Expressways operates and maintains 973 kilometers of inter-urban toll expressways in Peninsular Malaysia, stretching from the border of Thailand in the north to the border of Singapore in the south, linking all major cities on the west coast of Peninsular Malaysia.

Plus Expressways is actually owned by UEM Group Berhad, which in turn is largely owned by Malaysian sovereign wealth fund (SWF), Khazanah Nasional Berhad, which is very active in the sukuk market - both domestic and cross-border. Khazanah for instance remains the only issuer to have raised funds through local currency sukuk in Singapore (S1.5 billion) and in China (renminbi - RMB500 million).

Other members of the PLUS Expressways Group include Expressway Lingkaran Tengah Sdn Bhd (ELITE), Linkedua (Malaysia) Berhad (Linkedua), Konsortium Lebuhraya Butterworth-Kulim (KLBK) Sdn Bhd and is a substantial shareholder in PLUS BKSP Toll Limited (PLUS BKSP), Indu Navayuga Infra Projects Private Limited (INIPPL), PLUS Helicopter Services Sdn Bhd (PHS), Teras Teknologi Sdn Bhd (TERAS), Touch 'n Go Sdn Bhd (TNG), PLUS BKSP via PLUS Kalyan (Mauritius) Private Limited and Jetpur Somnath Tollways Limited (JSTL) in India and PT Lintas Marga Sedaya (LMS) in Indonesia. PLUS Expressways was listed on the main board of Bursa Malaysia in 2002 and is the largest toll expressway company in Southeast Asia and one of the largest in the world by market capitalization.

PLUS Expressways Berhad holds 94.12 percent direct and indirect interest in PLUS BKSP via PLUS Kalyan (Mauritius) Private Limited.

The PLUS Program, according to reliable banking sources, consists of two components - a RM11 billion component guaranteed by the government of Malaysia and comprising two tranches of RM5.5 billion each; and a RM23.35 billion Sukuk Al-Musharaka component comprising multiple tranches (21 in all) with various tenors but with no government guarantees.

Of the RM11 billion program component, the first RM5.5 billion tranche will be issued a week earlier than the second one, around the 12th January 2012 with a tenor of 26 years and the second one around Jan. 19 2012 with a tenor of 27 years and 353 days. The sukuk will be in the form of MTNs.

Of the non-government guarantee component totaling RM23.35 billion, a multi-tranche program of RM19.6 billion of various sizes and tenors (from 5 years to 25 years) is also scheduled to be issued on 12th January 2012. An anonymous source confirmed that the government guaranteed component is confirmed while the non-government guarantee component has attracted impressive orders from investors in the book building exercise which means that the issuance will be well over-subscribed.

The price guidance for the PLUS Sukuk program has not been revealed but, according to the same source, the yield is similar to those for 6 Months AAA rated Malaysian Government Securities (MGS) trading in the secondary market, which is regarded as one of the best benchmarks in the AAA market. This yield is very likely to be below 4 percent. A week ago, these securities were trading at 3.3 percent, but in the last two days the current six-month MGS has tightened to 2.95 percent, which augurs well for sukuk issuers in the Malaysian market.

Another local issuer set to go to the market to raise funds through a sukuk issuance in 2012 is MRT which is eying an MTN program totaling up to RM25 billion whose tranches would not all be issued in 2012. Of this some RM11 billion will have government guarantees.

The yield tightening could also prompt GCC-based issuers such as the Abu Dhabi National Energy Company (TAQA) who in October confirmed that it is setting up a RM3.5 billion sukuk program in Malaysia to diversify its funding sources. TAQA's investor relations manager, Mohammed Mubaideen, explained that "the company would like to diversify its sources of funding. The Malaysian market has great potential and is one of the markets that we are looking at." TAQA has held back to wait for the right timing and market conditions. With Malaysian yields tightening, this might just be the right time for TAQA to enter the market.

It might also prompt other GCC issuers such as by Kuwait-based Gulf Investment Corporation (GIC) to raise further funds from the liquidity-rich Malaysian and ASEAN market. GIC has an existing 20-year RM3.5 billion (1.18 billion) Islamic medium term notes (MTN) program in place in Malaysia. The corporation in fact issued its second Sukuk under the program in August 2011 - a RM750 million (254 million) Sukuk Wakala bi Istithmar.

Elsewhere, one major Sukuk structure and arranger has confirmed that it is working with a major bank in the Asia Pacific region but which also has branches in Europe including the UK to issue a Sukuk Al-Ijarah. The bank has a strong leasing portfolio and upon scrutiny the arranger, who says that it is very excited about the mandate, found that the portfolio is effectively Shariah-compliant and ideal for securitization. The bank however is extremely discreet about the issuance and the request for proposal (RFP) went out just before Christmas.

The same arranger also confirmed that there may be developments on the Sukuk front in Japan at Last. The Diet (Japanese Parliament) is considering the possibility of Japan issuing a Sukuk Al-Ijarah on the condition that 60 percent of the offering must be sold to local Japanese investors and parties.

The arranger is also in talks with the Kazakhstan government which is keen on a debut benchmark sovereign sukuk issuance; and sees new opportunities emerging for Sukuk offerings by Nigeria, Libya and Senegal in 2012.

Elsewhere, in Saudi Arabia the Capital Market Authority (CMA) confirmed that "in continuance with its efforts to develop and diversify investment channels in the capital markets via offers of securities," it has approved a request by Saudi Basic Industries Corp. (SABIC), the world's largest petrochemicals exporter, to issue and offer Sukuk with a value that does not exceed SR5 billion. This would be SABIC's 4th sukuk issuance to date.

Other Saudi entities, according to local bankers, that have expressed interest in issuing sukuk in 2012 include Saudi Aramco, the world's largest oil producer and exporter; Saudi Aramco Total Refining and Petrochemical Company (SATORP), a joint venture between Saudi Aramco and Total S.A. of France, which successfully closed its debut SR3.75 billion sukuk in October 2011; and the Jeddah Development Company.


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